Top British stocks for May

We asked our freelance writers to share their top British stock picks for May, including shares in the defence, energy and financial sectors.

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We asked our freelance writers to share the top British stock they’d buy this May. Here’s what they chose:

Royston Wild: BAE Systems 

The BAE Systems (LSE: BA) share price lifted off in February as tragic events in Ukraine unfolded, and it’s stayed strong since then. The war in Eastern Europe illustrates the tense geopolitical backdrop that I think will support sustained and strong demand for BAE Systems’ defence products. 

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In fact, BAE Systems has grown earnings in four of the past five years as global arms spending has risen. The only reversal came in 2020 when Covid-19 disruptions hit the bottom line. City analysts expect profits to keep heading northwards this year, and next too, as the West bumps up arms spending in light of recent events.

I think BAE Systems could be a particularly strong performer in May too as rising fears over rampant inflation boost demand for safe-haven shares like defence companies. 

Royston Wild does not own shares in BAE Systems.

Zaven Boyrazian: Alpha FX Group

Alpha FX (LSE:AFX) is a financial services group specialising in currency risk management and alternative banking solutions. The firm helps businesses mitigate foreign exchange risk while simultaneously enabling almost instant enterprise-scale international transactions – something not possible with archaic methods like wire transfers.

Corporate banks offer similar solutions and are a significant source of competition. However, these are often prohibitively expensive. By charging on a per-transaction basis, Alpha FX enables its clients to overcome this barrier to entry.

With an impressive track record of double-digit growth and its 2022 performance continuing to impress, I think it’s time to add more shares to my portfolio today.

Zaven Boyrazian owns shares in Alpha FX

Edward Sheldon: Smith & Nephew

My top British stock for May is Smith & Nephew (LSE: SN). It’s a healthcare company that specialises in joint replacement systems.

There are a couple of reasons I like the look of Smith & Nephew right now. One is that there’s a huge joint replacement backlog globally at the moment due to Covid-19. So, the company appears to be well positioned for growth in the years ahead.

Another is that the healthcare sector tends to be quite defensive in nature. So, the stock could hold up relatively well if we see a recession.

It’s worth pointing out that Smith & Nephew shares are not cheap. So, this adds a bit of risk. All things considered though, I see a lot of potential here.

Edward Sheldon owns shares in Smith & Nephew.

Stephen Wright: London Stock Exchange Group

I think that my top stock for May is one of the best companies in the UK. It combines a core business that has virtually no competition with other operations that have high margins, low costs, and generate huge returns.

The stock is London Stock Exchange Group (LSE:LSEG). The company operates the exchanges on which financial market transactions take place. These have high barriers to entry. But the company also has various other operations, including data, fixed income trading, and clearing services.

Stephen Wright does not own London Stock Exchange Group.

Michelle Freeman: Wizz Air

It’s no surprise to anyone that airline shares have had a rough time over the last two years. But with Wizz Air (LSE: WIZZ) down over 30% since the start of the year, I think its shares look potentially oversold compared to others. 

Yes, Wizz has more exposure to those Eastern European travel destinations that are impacted from the on-going war. But it has been diversifying its network and increasing capacity recently, including picking up more Gatwick slots from Norwegian.  

With the WTTC reporting triple-digit growth compared to last year, I wouldn’t be at all surprised to see the share price benefit accordingly. 

Michelle Freeman does not own shares in Wizz Air.

Andrew Mackie: Anglo American

My top stock for May is Anglo American (LSE: AAL). This may seem like a strange choice, given the 20% share price fall in the three days following a disappointing Q1 production report.

However, I would look beyond the headlines. At the moment, a lot of miners are suffering with high input costs, particularly diesel, Covid-related absences and production issues. However, all this is likely to do is push up prices even further.

The business remains a cash-generating machine, with a dividend policy of returning 40% of underlying earnings to shareholders.

For me, the commodities cycle is still very much in its early innings. With such a diversified portfolio, the sell-off has presented a good entry point for long-term investors.

Andrew Mackie does not own shares in Anglo American.

Andrew Woods: Tullow Oil

Tullow Oil (LSE: TLW) is an oil and gas exploration and production firm. It operates globally, but it has larger operations in Ghana and Kenya in Africa, and Guyana in South America.

The pandemic hit the business hard, resulting in a $1.2bn pre-tax loss in 2020. It recovered, however, to post a $200m pre-tax profit the following year.

In March, it increased its stake in two oil fields in Ghana, potentially increasing production by 4,000 barrels of oil per day. With oil prices at high levels, I think this firm could be a top stock for me in May.  

Andrew Woods has no position in Tullow Oil.

Paul Summers: XP Power

Having once made a big profit on the stock, I’m starting to think about buying XP Power (LSE: XPP) again. The share price of the critical power solutions provider has tumbled in the last few months due to a resurgence of Covid-19 in Asia, higher costs, and limited component supply.

Despite these headwinds, business is ticking along nicely. XP had a record order book of roughly £260m moving into Q2.

The valuation of 17 times forecast earnings looks pretty reasonable to me. There’s also a well-covered dividend to keep investors happy while the dark clouds pass. 

Paul Summers has no position in XP Power

John Choong: Dunelm

Dunelm (LSE: DNLM) was predicted to falter after Covid restrictions were lifted. But its most recent earnings report showed a 25% increase in its profits, with total sales up 10.6% year over year. Additionally, Dunelm has managed to maintain healthy margins of 10.8% whilst boasting a stellar balance sheet with zero debt.

Although its stock has taken a plummet due to disappointing retail sales figures, the fine print proves that the British retailer remains immune for the time-being, as household goods stores saw a 2.6% increase in sales. This is backed up by Dunelm’s own numbers, with an 8.5% increase in active customer growth.

John Choong has no position in Dunelm.

Roland Head: Redrow

I am picking FTSE 250 housebuilder Redrow (LSE: RDW) as my top stock for May. I think that shares in this founder-backed group could offer impressive value.

The risk of a UK economic slowdown is the main concern here. That could hit sales. But recent trading updates have not suggested any slowdown in demand for new housing.

In Redrow’s latest results, the company increased its sales and profit guidance for 2022 and said that profit margins were rising despite higher costs.

With the stock trading on six times earnings and offering a 6% dividend yield, I think Redrow offers excellent value.

Roland Head does not own shares in Redrow.

G A Chester: Integrafin Holdings 

Integrafin Holdings (LSE: IHP) owns Transact, one of the largest independent platforms serving UK financial advisors and their clients. It may not be as well-known as direct-to-consumer operator Hargreaves Lansdown, but it has a strong record of growth. 

Revenue has increased at a compound annual rate of 12% over the last four years and earnings have advanced at a rate of 14%. Negative market movements in asset prices are a risk, and wage inflation is also currently a friction. 

Nevertheless, after recent share-price weakness, and with a tailwind of structural growth in the UK wealth-management market, Integrafin looks a quality business on sale cheap. 

G A Chester has no position in Integrafin Holdings. 

Alan Oscroft: Kingfisher

At around the 250p mark, DIY specialist Kingfisher (LSE: KGF) looks cheap to me. The owner of B&Q and Screwfix staged a strong pandemic comeback. But that’s reversed in 2022, for a 30% fall over the past 12 months. The shares are now on a trailing P/E of only around seven, with dividend yields above 3.5%.

My main concern is that free cash flow for 2021-22 fell sharply. With net debt of £1.6bn, that could bite. But the company is buying up its own shares right now. I’d do the same.

Alan Oscroft has no position in Kingfisher.

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The Motley Fool UK has recommended Alpha FX, Hargreaves Lansdown, IntegraFin Holdings, Redrow, Smith & Nephew, and XP Power. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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